Carbon Tax and The-Polluter-pays Principle

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April 17, 2023
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Carbon Tax and The-Polluter-pays Principle

South Africa is the 14th largest greenhouse gas emitter in the world. The main contributors being the energy and heat, transport and manufacturing and construction sectors. This is rather concerning considering the current heightened awareness around conservation initiatives to save our people and planet.

The importance of controlling carbon emissions

Carbon dioxide absorbs radiation and prevents heat from escaping from our atmosphere causing global temperatures to rise along with other climate changes. According to the World Health Organization climate change is expected to cause approximately 250 000 additional deaths per year between 2030 and 2050.

The South African government has acknowledged the part that it plays in this alarming statistic and has voluntarily committed to curb emissions through changes in legislation.

The Polluter-Pays-Principle

The polluter-pays-principle was introduced in 1972 but has now become the basis to curb carbon emissions. The principle supports the notion that the polluter should pay for the damages done to the natural environment.

Introducing Carbon Tax

A carbon tax is a cost that is imposed on the carbon emitter (‘polluter’) to encourage cleaner practices thus reducing greenhouse gas emissions in a sustainable, cost effective and affordable manner.

The Carbon Tax Act of 2019 came into effect on 01 June 2019 in South Africa and will be administered and collected by the South African Revenue Services. The Act is applicable entities whose emissions are equal to or above the carbon tax threshold stated per sector in Schedule 2 of the Act.

The rate of carbon tax is imposed at an amount of R 120.00 per ton of carbon dioxide equivalent of the greenhouse gas emissions of a taxpayer. The carbon tax rate increases annually by inflation plus 2% until 2022 and annually by inflation thereafter.

Significant tax-free emission allowances ranging from 60% to 95% will result in a modest effective carbon tax rate ranging from R 6.00 to R 48.00 per ton of carbon dioxide emissions to provide current significant emitters time to transition their operations to cleaner technologies through investments in energy efficiency, renewables, and other low-carbon measures.

Carbon offsets allowances are also available as incentives for entities that engage in projects that reduce emissions. If there is no carbon tax related to these projects, then the entity may be able to register the emissions reductions as offsets which can be purchased by carbon taxpayers to reduce their carbon tax liabilities.

A better future for all

While the introduction of the carbon tax maybe viewed as an additional cost eating at profits and further administrative burden, it is encouraged to rather focus on the better future that will result from reductions in carbon emissions for all.